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Ghana: Financial inclusion and SMEs set to soar

Financial and insurance activities are expanding at roughly twice the pace of the overall economy and just 30 per cent of the population are formally banked, so industry leaders have good reason to be optimistic about the country’s financial services future

As Ghana passes through a period of belt tightening, its banks have emerged with stronger balance sheets, positioning themselves to reach a growing retail and commercial customer base that is hungry for financial products. The country’s financial services sector continues to expand access to capital and innovative new products, with financial and insurance activities growing at roughly twice the pace of the overall economy, at 12.1 per cent in 2013. As such, industry leaders have good reason to be optimistic about the future of banking and finance in Ghana.

Like many countries in the region, a relatively small share of Ghanaians currently have access to a bank account at a formal financial institution – just 30 per cent according to the most recent figures. Traditional commercial bank branches, meanwhile, number just five for every 100,000 inhabitants in Ghana.

While access to financial services has frequently been blamed as an impediment to greater inclusion in the country’s growing prosperity, the availability of cheap data-enabled handsets, as well as mobile banking and electronic banking services, is transforming the banks’ abilities to transcend infrastructure gaps and reach millions of customers in the informal economy.

Rolling out these new services will require increased upfront capital expenditures for hardware, software and network infrastructure, but bank executives expect that these investments will be fully recovered through the new revenue streams that the services are expected to generate. These technology-enabled products and services will be among the principal drivers of asset and revenue growths over the next several years.

“If you look at Ghana, we have rich natural resources. We have huge tracts of fertile land and fresh water bodies all over the place. We have enough to be able to produce,” says Stephen Kpordizh, Managing Director of Agricultural Development Bank (ADB). “But that requires investments. That is where organisations like us come in handy.” ADB is one of two new listings expected on the Ghana Stock Exchange planned for next year. The upcoming public listing reflects ADB’s upward trajectory within Ghana’s banking sector, which counts 27 universal banks, 137 rural and community banks, and 58 non-banking financial institutions in total.

“Until 2009, ADB had only 55 branches. Of those, about 88 per cent were located in the southern part of the country. In the northern part of the country, which is about 30 per cent of the surface area of the country, we had only three branches of ADB and the area is predominantly agricultural,” Mr Kpordizh explains. “Today, we have 78 branches, but there are more than 200 districts. We need to make banking more accessible to the entire population.”

While international capital markets play an essential role in this development process, Ghana’s Securities and Exchange Commission, under the leadership of Director General Adu Anane Antwi, works to create the necessary framework for Ghanaians to play a more active role investing in key areas, giving them a larger stake in the country’s progress. The Securities and Exchange Commission focuses its efforts on promoting the benefits of the capital markets to Ghanaians, urging market players to pass on their knowledge and experience to educate people on how to maximise their investments.

“The commission takes investor education very seriously,” explains Mr Antwi. “We think it is key because it is our mandate to protect the investor; we believe that a well-educated investor is a well-protected investor. If you look at our research you will see the number of investors is growing and that is a good sign. So we need to do more to get everybody to be part of the capital market.”

Demonstrating the importance of financial services to meet the changing needs of a society approaching middle-income status, total assets within Ghana’s banking system expanded by 26 per cent annually, on average, from 2008-2012, rising to 33 per cent in 2013, according to the PwC 2014 Ghana Banking Survey. The sector’s resilience in the face of rising inflation and significant regulatory changes can be credited to a growing pool of capital and customers made possible by solid underlying fundamentals in the economy, as well as important technological advancements that have the potential to revolutionise the way Ghanaians bank and do business.

Thanks to these broad trends, about six in 10 banking executives in Ghana are confident that transformations in the banking sector will result in an overall positive impact on the future of banking in Ghana over the next five years, according to the PwC survey, while a majority of bank executives also say that they are well prepared to make the most of opportunities and overcome challenges in banking over the next five years.

Institutions like ADB are providing the Ghanaian economy the traction it needs to continue meeting its customers’ financial needs.

“The first thing we did in 2009 was to review the business model and to determine whether it was still relevant for the modern trends,” Mr Kpordizh continues. “Following that review we developed a new model, which was aligned to the structure. We created a dedicated agricultural financing unit and established an asset finance unit. We did this because one of the challenges for the agricultural sector is lack of access to machinery, plant and equipment, so there was a need to provide a financing lease arrangement. We also created a dedicated retail department, because like it or not, the banking space here is largely retail, so we needed a retail offering.”

Ghana’s explosive growth has in large part been fuelled by the diversity of new opportunities now available for small and medium-sized enterprises (SMEs) led by an emerging class of entrepreneurs. Banks have helped enable this development by recognising their customers’ priorities and adapting their services accordingly.

“SMEs are a vital component of our economy,” affirms Nilla Selormey, CEO of Universal Merchant Bank (UMB). “UMB has a strong focus and commitment to the SME sector. Our Business Banking department is dedicated to serving the needs of SMEs. We understand the importance of their success and our specialists work tirelessly to develop solutions that will provide our SME clients with the capital that they need to grow their business. Furthermore, to a certain extent, the success of retail banking on the continent depends on the strength of your ATM network and your Visa and MasterCard offer. Currently we have 24 ATMs and in the very near future we will be adding 18 additional ATMs to our network.”

UMB serves as an example of the banking sector’s changing face in Ghana as the country progresses up the income ladder. “While we are very proud of our history and past accomplishments, we recently rebranded from Merchant Bank to Universal Merchant Bank in order to begin a new chapter in the bank’s development,”

Ms Selormey continues. “We are in fact a bank reborn. We will continue in the same spirit of innovation and excellence from which we were created, but adapted for our current context.

“Indeed, our objective is to set the standard for private banking in Africa. The future looks very bright for UMB and we are very excited. Our objective is to be a trailblazer in banking and we will achieve that.”

Adding to the momentum of entrepreneurship in Ghana, two years ago Stanbic Bank launched a product to help curb the challenges that SMEs go through before accessing loans, which was meant to revolutionise the Ghanaian banking industry. The product, which is known as the SME Quick Loan, is an innovative way of granting credit to SMEs.

The government is focused on making SMEs the engine of the economy and with new trade opportunities opening up with the EU through the proposed Economic Partnership Agreement (EPA), Stanbic stands to benefit.

“We need to make sure that there is rigor around the business operation of SMEs, so we don’t just give them credit, we give them training. And we ensure that over the long term we help them build corporate governance,” says Alhassan Andani, Managing Director of Stanbic Bank Ghana.

Synergies being generated by demand from the retail sector, as well as SMEs, heavy spending on infrastructure projects and complex financial products supporting the burgeoning oil production sector of the economy have all helped to develop the country’s financial sector.

“Ghana is becoming an oil economy and other activities, especially the capital market, reflect that oil economy,” adds Mr Antwi. “So we expect more oil companies to be listed on the stock exchange. How do you get them listed? You have companies that are rendering services, you have oil-marketing companies, but they need help.”

To address this need, Mr Antwi has been promoting a new fund to help raise capital for domestic companies operating in the sector.

“This oil and gas fund is a mutual fund, in which everybody is invited to join, because it’s a pubic company, regardless of the amount of money you have. The size of the initial entry is just 50 Ghana cedi (£9.70),” he adds. “If we can all put our small funds together, before we will have realised it, we will have 50 million cedi or whatever large amount that these companies can draw for their operations. So this fund is going to invest heavily in all these companies, be it drilling or services for the oil and gas sector. They will all have some investment coming from this fund, which will help them move their resources on the banks. People always rely on banks for their working capital and other capital needs. Once they are able to mobilise their resources, then they will be there to make sure that people who need money in the oil and gas industry – at least the service providers – are able to also get investments from this side.”

Another important development in Ghana’s financial sector has been its integration into regional and global capital markets. “We finally established the West African Capital Markets Integration Council,” Mr Antwi says. The council’s member-countries – comprising Ghana, Nigeria, Sierra Leone and the Bourse Regionale des Valeurs Mobilieres (BVRM), which features eight Francophone countries – gave their approval to fast-track the integration process in September 2014.

“Our plan is to make sure that by the end of this year we will be able to have trade amongst ourselves,” explains Mr Antwi. “We are in the first phase, which we call sponsored assets, where if you have a broker in Ghana you can trade in the stock exchange in Nigeria through another broker in Nigeria. These are the things we are doing and we hope that they will bring us a bigger market.

“So if you are in Ghana and you have a floating of shares, they are not only available for Ghanaians – they are available for everybody in West Africa. Therefore you have a bigger market. It will help raise a larger amount of funds to be able to sponsor our operations as individual companies and together our GDP will grow. This will also help to go forward in the issuance of regional bonds, because if you have an integrated market then it is easier for you to issue a regional bond that can be sold across the region, whether by a government or by a private sector.”

The country’s financial sector has been buoyed by a 64 per cent rise in net profits, a loan portfolio that has been profitable for three consecutive years, and a positive return on investment that reached 4.2 per cent last year. Furthermore, additional capital being generated in the oil and gas sector, among other sources, is allowing institutions like ADB and UMB to roll out long-term expansion plans.

“We have achieved a 60 per cent growth in deposits and we expect this number to increase with the new financial products and services that we will be unveiling,” UMB’s CEO Ms Selormey adds. “Last year we had 22 branches located throughout Ghana and by the end of this year we will have a minimum of 32 branches.”

As a result, banks are now contemplating moves into profit centres not typically associated with emerging markets in Africa. “We are looking at new customer segments, including high net worth individuals,” the UMB chief explains. UMB’s expanding services also include the launch of its private banking department earlier this year.

Focusing on these trends, it is easy to see why Ghana’s financial leaders continue to be upbeat on the sector’s future. “Since the beginning, Ghana has been making the best of any opportunities that Africa presents to the world,” says Felix Nyarko-Pong, CEO of UniBank. “2008 saw the financial crisis in Europe, but it goes beyond that – margins have dried out over there, and investors are looking for other opportunities. What better place than Africa, where we have returns running in double digits for many sectors? In Africa, some economies – Ghana included – retained double-digit growth through 2011, and Ghana still managed 8 per cent last year while Europe and America still struggle.”

“Our growth depends on the growth of the country,” adds Prince Kofi Amoabeng, CEO of UT Bank. “UT Bank is positioned as the hero for SMEs. We have lending appeal to that sector because we are responsive to their needs. “SMEs will remain the engine of growth, and they need to be supported. We will not change our focus, it is just a matter of building more robust structures to do what we have envisioned to do.”

Even as the domestic economy provides ample opportunities, participating in the global economy will be essential to the industry’s growth and development, executives say.

“We need to understand that as a country, we require some other resources to complement what we have. We are hoping that the relationship with the UK will deepen,” Mr Nyarko-Pong continues. “We want all good-meaning businesses to come here and take advantage of the win-win opportunities being offered here in the full confidence that the environment set here is no different from what is set out there in the UK to help make the investments not only safe but grow.